Estate Planning

In estate planning, the titling of assets is often the most important consideration of how those assets will be distributed upon death. If you have not taken time lately to review how all of your assets are titled and how beneficiaries are designated, it can be a useful exercise. Let’s take a look at a few examples:

Brother and Sister own a piece of real estate as tenants in common. Many people think that this titling means that Brother and Sister own this “jointly”, however there is a very important distinction to be made. If Brother or Sister die, the other party will not be the sole owner. The deceased sibling’s share will pass through their estate. If the deceased sibling has a Last Will and Testament, it will go to who is designated in the deceased sibling’s Will. If there is no Will, the state laws will control the distribution through what is known as intestate succession. The result can be that now Sister owns the property 50%, and the other 50% owned by any number of Brother’s heirs, maybe spouse, children, grandchildren, significant other, etc.

Three small words on a deed can dramatically change the outcome. Those words are “as joint tenants”. If the deed stated that brother and sister hold the property “as joint tenants” then upon the death of one sibling, the other sibling will be the sole owner. Joint ownership is perfect in some cases, but can be problematic in others. For example, any jointly owned property may be subject to the other owner’s creditors. If Brother has creditors, they can pursue a judgment against the property owned by Brother and Sister together.

A different example that is often seen in the estate administration realm is when a parent adds a child as a joint owner on a bank account. Upon that parent’s death the joint owner child is the sole owner. That asset will not be distributed through the terms of any trust or will, even if the parent intended for the asset to be split amongst all of their children, not just the child who was a joint owner. This can, and often does, cause problems if there are other children named in the estate planning documents. The joint owner child may choose not to share the asset with the other children, even though this is what the parent intended, and would be perfectly within their rights in doing so.

If an asset is titled as the property of a sole owner, we do not have any of the problems of joint owner, or tenancy in common ownership. However, that asset will have to pass through probate upon that sole owner’s death. Probate is the court supervised process of transferring title of assets. Probate is designed to protect the deceased person’s wishes; however probate can often be expensive and time consuming.

Another way of titling an asset is in a trust. A trust is a legal document that can hold title to an asset, which allows for effective management of that asset by the trustee. A common tool is a revocable living trust that allows the person setting up the trust to be the trustee and beneficiary, so they continue to have complete control over the asset during lifetime, and upon death, the trust terms determine the distribution and the distribution is made without any court probate process.

When setting up your estate plan, the key is often how the assets are titled. Your estate planning attorney can develop the best documents in the world, but if they do not match how the assets are titled, the plan may not work properly. It is important to meet with an estate planning attorney to determine exactly how things are titled and how that may or may not accomplish your goals.

New York’s Spousal Right of Election protects a surviving spouse from being completely disinherited from the estate of the deceased spouse. Under EPTL 5-1.1A, a surviving spouse is entitled to take the larger of $50,000 or one-third (1/3) of the deceased spouse’s net estate. This is known as the “elective share.”

The elective share is calculated from the net estate, which includes the probate estate AND all testamentary substitutes that may exist. Testamentary substitutes are assets that do not go through the probate process; transferring automatically upon death. Examples of testamentary substitutes include: jointly owned property; joint bank accounts; transfer on death (TOD) designations; payable on death (POD) accounts; assets held in living trusts; and retirement account beneficiary designations (IRA’s, 401k, 403b). Life insurance proceeds are not included in the net estate for elective share purposes.

The effect is that you simply cannot disinherit your spouse in New York State without going through a specific process involving the spouse.

Passing Away with a Valid Last Will and Testament:

Contrary to what many may believe, even if the deceased spouse’s Will explicitly disinherits the surviving spouse, the surviving spouse will not be disinherited. The same is true if the Will does not contain any bequest to the surviving spouse. The surviving spouse will generally have the ability to file a Right of Election in the Surrogate’s Court probate proceeding in order to receive assets equal to the elective share. The Right of Election needs to be filed within six months of the Surrogate’s Court appointing an executor and issuing Letters Testamentary.

If the right of election is timely filed, the judge can recover bequests left to other beneficiaries in order to satisfy the spouse’s interest. Once the spouse’s elective share is satisfied, the remaining estate will be distributed as per the deceased spouse’s will.

Dying Intestate (without a Valid Last Will and Testament):

You are said to die intestate when you pass away without a properly executed will. If there are no children involved, the surviving spouse receives the entire estate. If there are children, the surviving spouse receives the first $50,000 and then half of the remaining estate. The remaining portion of the estate then goes to the deceased spouse’s children, per stirpes. The surviving spouse has to assert her right to election within either 6 months if letters are issue or within two years of her spouse’s death. A suriving spouse may file a Right of Election if the majority of the assets go through testamentary substitutes that are not covered by the intestate distribution provided for under New York law.

Exceptions to the Right of Election:

EPTL 5-1.1A can be avoided with a pre or post-nuptial agreement. These agreements often will contain a clause waiving the Right of Election. In order for the waiver of a Right of Election to be valid, the waivers must have been understood, agreed to and signed. Attorneys should be retained, by each spouse, to prepare, supervise and explain such an agreement. If a judge finds that either party entered into the agreement without full understanding of the agreement, it may disregard the agreement in full, which would include the waiver of the Right of Election. In addition, a spouse who has been determined to have “abandoned” the deceased spouse is disqualified from making the election.

The Elective Share & Second Marriages:

There may be many reasons why one spouse may decide to disinherit the other. The most common is when two individuals enter into a second marriage later in life and one or both wishes to leave their assets to their children from a prior relationship. In life, each may promise to have no interest in the other’s estate, but that does not prevent the surviving spouse from changing her/her mind upon the first spouse’s death, thus going against the wishes of the deceased spouse and causing issues in the administration of the deceased spouse’s estate.

A full estate plan review should be conducted prior and subsequent to a second marriage to ensure that the proper protections are in place to ensure that each spouse’s assets will be distributed according to their wishes.

As many are likely very aware, the end of 2017 brought with it new tax reform that took effect January 1, 2018. The Federal Tax Cuts and Jobs Act (the “Act”) made many revisions to the tax code in the first significant reform to the tax code since 1986. This article will focus on the impact the Act has with regard to estate and gift taxes.

Changes to Federal Transfer Tax Laws

Previously, an individual was able to transfer up to $5.49 million without any worry of Federal gift, estate or generation skipping transfer taxes (collectively referred to as “transfer taxes”) during life, at death, or by combination of the two. Married couples could transfer a combined $10.98 million free of transfer taxes. Any assets transferred beyond those exempt amounts were subject to a 40% tax

The Act provides for a doubling of the exemption amount to roughly $11.2 million per person, adjusted annually for inflation. Married couples will now be able to effectively transfer a combined $22.4 million free of transfer taxes. This doubled exemption is scheduled to remain in effect for 8 years and will sunset at the end of 2025, if the federal government does not act sooner. Property transferred in excess of the increased exemption will continue to be taxed at a rate of 40%.

Individuals are also offered an annual exclusion from gift tax for direct gifts to individuals or certain trusts. In 2017 this exclusion was $14,000.00 per recipient, per year. In 2018, the IRS raised the annual gift exclusion to $15,000 per recipient. A married couple may combine their individual exclusions to allow for tax-free gifts of $30,000 per recipient. This scheduled change is due to inflation and not the new legislation and follows the IRS’s pattern of raising the annual exclusion every three (3) to four (4) years based on inflation.

It is important to note that the rules regarding basis for gifted assets versus inherited assets will remain the same. A donor’s basis in property which is gifted will “carry-over” to the gift recipient while property owned at death will receive a “step-up” in basis equal to the date of death value. Therefore, individuals will need to consider if it is more advantageous to gift property during their lifetime or wait for the step-up in basis that would occur at the time of their death.

Changes to New York State Transfer Tax Laws

New York estate and gift tax continues on in its previous form adopted in 2014. There continues to be no New York gift tax and the exemption from the New York estate tax will continue to be $5.25 million through the end of 2018. The exemption will rise for decedents dying on or after January 1, 2019 and it is estimated that the exemption will be between $5.6 million and $6 million at that time. Estates in excess of the exemption will continue to be taxed at a maximum rate of 16%. The unique estate tax “cliff” in New York will continue such that there is no exemption for estates exceeding the NY exemption amount by more than 5%.

Keeping up with passwords and usernames in an increasingly electronic world
can be overwhelming at best. For many people even bank statements are now delivered
neatly to electronic inboxes, but have you ever stopped to think who else may need
access to all those usernames and passwords? If something were to happen to you, do
your loved ones know how to access your accounts electronically? While the mechanics
of estate planning are best left to a legal professional, preparing a list of account access
information can give both you and your loved ones piece of mind in times of emergency.

When determining what information to include you should consider who would
manage your affairs if you were unable to do so. For example, if you pay your bills
electronically, does someone know how to access the accounts? Would you like your
loved ones to have access to your email? Next, discuss the list with your loved one; they
may have additional suggestions for information to include. After you have determined
what information to include you should consider how you would like to store the
information.

When making a list of account access information it is important to keep security
in mind. There are various “In Case of Emergency” (I.C.E.) workbooks and resources
available for those who prefer to keep a hard copy of the information. Such books should
be filled out completely and kept in a safe or other secure location. Loved ones should be
informed of the book’s contents and location so that it is easily accessible in times of
emergency. Another option is to keep private information on an encrypted USB flash
drive. Password protected drives can be paired with password protected PDF documents
to give an extra layer of security. As with hardcopies of the materials, it is best to keep
the drive in a safe or other secure location. Finally, there are websites where companies
will electronically store such information for you, though some charge a monthly fee.
(This last solution may be especially helpful if you are someone who has trouble keeping
track of your usernames and passwords for your own use.)

Planning for an emergency is rarely at the top of any to do list, but ensuring that
your loved ones have the ability to manage your affairs in case of a short term illness or
other emergency can save time and ease stress. Creating a list of electronic usernames
and passwords is just one way to ensure that your loved ones have time to focus on what
counts.

For many young adults, the consequences of not having an estate plan in place can be dire. Estate planning is not only tax and probate avoidance, but it is planning for your lifetime and incapacity as well.

One tragic case that many people are familiar with is that of Terry Schiavo. Terry Schiavo was a persistent vegetative state for 15 years. During the course of that 15 years, her husband petitioned the courts in Florida to have Terry’s feeding tube removed. This was opposed by her parents. This prolonged legal battle garnered national attention. At the time of her cardiac arrest that precipitated the persistent vegetative state, Terry was 26 years old.

It is these types of situations that many young adults do not consider. They believe that nothing will happen to them, and even if it does, they feel that they do not have the assets to justify the expense of putting together an estate plan and that everything “will work out”. They do not anticipate the potential for prolonged legal battles between loved ones.

Estate planning becomes even increasingly important for those young adults with minor children. Minor children require special planning. A Last Will and Testament is a document where you can name a guardian for your minor child. If you do not name a guardian for your minor child it will be up to the court to decide who will care for your child when you are gone. You also need to be able to decide who will manage the inheritance that you leave to them. An extremely valuable tool to accomplish this goal is a revocable living trust. A revocable living trust is a will substitute that allows you to retitle your assets during lifetime into a trust to make the transfer and management of assets upon your death much easier for your beneficiaries. Through the living trust you can name a successor trustee to manage any assets for your children with whatever conditions you set forth. Many of my clients chose to name a specific age at which their children will have full access to their inheritance. Others choose to have a sprinkling distribution, such as ½ of the inheritance at 21 and the remainder at 30. Still others choose to allow a mandatory distribution of a certain amount of the assets each year until such a time that the full inheritance will go out to the child.

Planning even as a young adult is critically important to protect yourself and your family. A comprehensive estate plan includes a revocable living trust, pour over will, financial power of attorney, health care power of attorney, and living will. Anyone over the age of 18 should strongly consider having at least a financial power of attorney, health care power of attorney, and living will.

Contact a qualified estate planning attorney to counsel you in creating a comprehensive estate plan that can adequately prepare for incapacity and death.

While discussions for estate planning often focus on married couples, estate planning for a single person is equally as important. In many instances, a single person may need to do things differently and the consequences of not having a well-coordinated plan can create real problems. Most single people own assets in their names individually and may also own some assets as a joint tenant with right of survivorship. Other assets, such as life insurance or retirement assets, will be distributed at death according to the terms of their beneficiary designations. How these varying assets are titled and how the beneficiary designations are prepared will directly impact who will get control of the assets and how they’ll be distributed at the individual’s death.

For a single person, the default under state law usually provides that assets are passed on to their closest relatives. If an individual dies without a will (known as intestate), possessions are distributed according to the default laws of his or her state. Under these state laws, a married individual’s assets typically go to their spouse or children. For a single person, however, the default under state law provides that assets are passed on to their closest relatives (e.g. children, parents, siblings). If there are no relatives alive, assets may go to the state. To avoid having the state decide the fate of your assets, it is imperative that you put an estate plan in order to ensure your wishes are carried out

Here is a brief guide to preparing essential estate plan documents providing direction on how your estate should be distributed and who should be responsible for making important decisions on your behalf — if you become mentally or physically incapacitated or for your estate following your death.

A will: Your will is the centerpiece of your estate plan and allows you to distribute assets as you see fit; name guardians for minor children and assign an executor to guide your estate through probate, the court-supervised process of accounting for your assets. The executor you name should be someone trustworthy and not easily swayed; if you don’t have close relatives, choose a close friend or an independent third-party, such as an attorney. When preparing your will, give some thought to how your home or personal property should be distributed. Investments are easily divided between beneficiaries, but a single person may have very specific wishes about who should inherit his or her home or personal property with special sentimental value.

Durable power of attorney: This document lets you appoint someone to manage your day-to-day financial and personal affairs even if you become unable to do so for yourself. A married person often names a spouse for this role; a single person should select a trusted friend or family member with strong financial acumen.

Medical provisions: A health care directive speaks to your medical wishes if you are unable to communicate them yourself. A medical power of attorney names an individual who is authorized to discuss and make decisions on your treatment and care. When selecting someone for this role, remember that it doesn’t have to be the same person as your financial power of attorney. Take care to choose a trusted individual who knows you well and who will respect your wishes regarding medical care and life-support decisions.

Updated beneficiary designations: These will determine who will receive your benefits including life insurance and retirement plan assets. So be certain the designation forms are up-to-date, coordinated with your estate planning documents and best reflect your wishes.

Advice for Transferring Assets: When planning for the distribution of your estate, there are important tools to keep in mind, such as a trust, which holds assets for the benefit of a third-party beneficiary. Since a single person determines the right tools to use for effectively creating an estate plan to properly dispose of his or her assets, it’s important that you also coordinate that planning with the way your assets are titled and the way your beneficiary designations are prepared. Speak to an Estate Attorney and Financial Adviser If you don’t have an estate plan that speaks to asset transfer; business and financial decisions and health care directives, meet with an estate planning attorney and financial adviser. These professionals will help you craft a comprehensive plan tailored to your situation to ensure that your assets will be distributed the way you intend.

State of New York has become the 27th state in the nation to launch an ABLE program. The New York ABLE Program, named NY ABLE, is administered by the Office of the New York State Comptroller, managed by Ascensus Broker Dealer Services, Inc. and backed by Vanguard, Sallie Mae and Fifth Third Bank. NY ABLE accounts are available to eligible New York residents with disabilities.

NY ABLE allows qualified individuals with disabilities to save up to $14,000 a year in an ABLE account without jeopardizing their eligibility for federally-funded means tested benefits, such as Supplemental Security Income (SSI) and Medicaid. The funds in the account can be used for disability-related expenses that assist the beneficiary in increasing and/or maintaining his or her health, independence or quality of life. The maximum account limit for a NY ABLE account is $100,000.

Individuals with disabilities and their families are often relegated to a life of poverty as a result of not being allowed to build even the most modest levels of resources. Individuals receiving supports through Social Security, Medicaid and other publicly-funded programs are often disqualified from those programs if they have more than $2,000 worth of resources or assets. With the launch of ABLE programs nationwide, individuals with disabilities and their families will be able to allow the individual with a disability to grow their savings and not be subject to the embarrassment of poverty.

Like the other ABLE programs across the country, the NY ABLE program focuses efforts to ensure minimal costs associated with establishing and maintaining an ABLE account (which can be done online). There is a $45 annual fee payable quarterly at $11.25. If paper statements are selected, the fee increases to $13.75 per quarter ($55 annually). The NY ABLE program has a monthly maintenance fee of $2, which can be waived if the average daily balance is over $250 or by electing electronic statements at Fifth Third Bank. The annual investment fee is 0.40%.

In addition to NY ABLE, there are, as of the date of this blog, 26 other states that have launched ABLE programs: Alabama, Alaska, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia. Most of these ABLE programs are open to eligible individuals nationwide.

Eligible individuals and their families may consider looking at another State besides New York, if that state offers better benefits. For instance, in Ohio, the ABLE program allows for a maximum balance of $445,000.00 for the accounts, while maintaining the federally mandated $14,000.00 annual limitation for deposits into the ABLE account. This would mean a family could deposit the maximum amount of $14,000.00 for over 30 years before reaching the limit.

NY ABLE offers 5 account options for individuals that open an ABLE account. There are four investment plans based on the level of risk one is willing to take, much like a 401k plan. These levels are Conservative, Intermediate, Moderate, and Aggressive. NY ABLE also offers a checking account option, allowing the account to have a debit card and checkbook associated with it. The checking account could be very appealing to those families where the individual with a disability should experience handling a checkbook. There is also the benefit of not having any risk, as these are FDIC insured accounts, through Fifth Third Bank.

For more information on the NY ABLE program and how to enroll, families can visit www.mynyable.org.

When you are selecting a trustee as part of the trust creation process, you need to ensure that you select the right person. The trustee has many different responsibilities and serves a vitally important role. Before you decide who will fulfill this position, you need to understand what trustees are actually responsible for and what their legal obligations are.

The decision on who should serve as your trustee is just one of many important choices that you are going to have to make when you create a trust. You should talk with a qualified trusts attorney throughout the trust creation process so you can make informed choices about every aspect of creating your trust. Your trust should provide you, your family, and your assets with important protections and making informed choices is an important part of creating the protections.

When selecting trustees, the type of trust that you create can make an impact on the role that your chosen person will play and on when that person begins to take responsibility for actively managing trust assets.

For example, the job of a trustee will differ when you create a revocable living trust, which you may maintain substantial control over while naming a backup trustee to take over in the event of your incapacity, versus when you create an irrevocable living trust which requires you to give up substantial control over trust assets. The person who you put in charge of a special needs trust or a spendthrift trust is also going to have a different, and more active, role to play than the trustee for other types of trusts.

Still, when you create both a revocable trust and an irrevocable trust, the person who you select as a trustee will have a fiduciary duty and could have substantial responsibilities for managing trust assets and following instructions you set forth in your trust document. You want to find someone who you can count on to fulfill the role that the law assigns to trustees and someone who you can trust absolutely to manage your trust assets and act in the best interests of your beneficiaries.

Some of the key characteristics that you should look for when selecting the person to serve as your trustee include the following:

Honesty: Above all else, the person who you select to manage your trust should be someone who you believe is honest. The individual you select is going to have a lot of control over assets and over important financial decisions and you want to know beyond a shadow of doubt that the individual is trustworthy and will do the right thing. While it is true the law requires honesty and prohibits conflicts of interest, it can still be a major aggravation to pursue legal action against a trustee who abuses his power or mismanages assets.

Financial knowledge: The person who you select is going to have responsibility for managing the assets held within the trust. You want someone who has a good grasp of the management of the type of property and assets that are held within the trust. You need to ensure that the person who you select has good financial knowledge and can keep the assets safe and make smart decisions that could potentially help to increase the value of the assets that are held within the trust.

Shared Philosophies: Odds are, if a successor trustee is acting under your trust, it will be to guide the assets left for the benefit of your children. You should select a trustee that shares the same philosophies as you with regard to how you would want the funds used. Do you believe your children should pay their way through college? Make sure your trustee feels the same or understands your position. Do you believe your children should want for nothing and should have everything they ask for? Make sure your trustee would be willing to do the same.

Selecting a trustee is not always an easy task. If no one in the family seems to be an appropriate choice or if the assets left in trust are of a large amount, a professional trustee is always a suitable alternative to consider. This could be a financial institution or an attorney/law firm. Speaking with a qualified attorney will help you make the important decision of selecting a trustee.

A First Party Special Needs Trust is a very powerful tool that allows an individual with a disability to protect a large sum of money from counting against them with regard to qualifying for needs based governmental programs, such as Medicaid and Supplemental Security Income (SSI). By federal law, a First Party Special Needs Trust can hold the individual’s assets and allow the individual to benefit from the funds without risk of losing their public benefits. Previously, the federal government has only allowed the individual’s parent, grandparent, guardian, or a court of proper jurisdiction to create the First Party Special Needs Trust. This created some unnecessarily unfair situations where an individual may not have had a parent, grandparent or guardian at the time when a Special Needs Trust was needed. A large number of First Party Special Needs Trusts are created upon the death of the parent, when the individual inherits a large sum of money. Since the parents and grandparents were no longer living, the individual often required a court to create the First Party Special Needs Trust, adding unnecessary delay and expense.

In December 2016, President Obama signed the Special Needs Fairness Act into law and we are happy to report that the New York State Department of Health has issued a General Information System (GIS) message that states “effective immediately, in the case of a certified disabled Medicaid applicant/recipient, districts must not consider as available income or resources the corpus or income of a trust established by such disabled individual when he or she was under 65 years of age, provided the trust otherwise complies with the ‘exception trust’ provisions…”. This means that the Special Needs Fairness Act allows the individual with a disability to create a First Party Special Needs Trust to hold their assets while still allowing eligibility for Medicaid, SSI, and the like. The passage of the Act is important as it ends the ends the incorrect and unfair presumption that all individuals with disabilities lack the mental capacity to handle their own affairs. Many individuals who qualify for a Special Needs Trust handle their personal affairs on their own every single day. In order to create a First Party Special Needs Trust, the individual must be under the age of 65, certified as an individual with a disability, and have the mental capacity to understand the document they are creating.

The passage of this law allows for more flexibility in allowing individuals with disabilities to live their lives beyond what public benefits provide for. If you or someone you know would like to learn more about First Party Special Needs Trusts, contact a qualified attorney who is knowledgeable in the area to help guide you.

One of the more common questions we deal with in the initial interview with many clients is why they need both a living will and a health care proxy. The answer to this question is quite simple but a background on what each document specifically does is useful.

Health Care Proxy

The health care proxy is an important document that every person should have as part of their overall estate planning portfolio. Under a health care proxy, the person signing (the “Principal”) designates one Health Care Agent and as many successor Health Care Agents as the Principal chooses. This Health Care Agent will make decisions regarding the Principal’s medical treatment in the event that the Principal is unable to make these decisions on their own, as determined by a physician. The Health Care Agent will not be able to make decisions before this determination by a physician and will not be able to make further decisions if there comes a time when the Principal regains capacity.

Appointing the Health Care Agent allows you to control your medical treatment by: allowing the Health Care Agent to make medical decisions as the Principal would have wanted; allowing the Principal to choose a person who the Principal believes would make the right decisions; and allowing the Principal to avoid conflict and/or confusion amongst the Principal’s family members. This last point raises an important facet of the Health Care Proxy, only one person may act as a Health Care Agent at a time. The Health Care Agent will likely be an individual that the Principal is very close with. Because of this, making end of life decisions could be a very difficult choice for the Agent. This leads to the power of a living will and why a living will should always go hand in hand with a Health Care Proxy.

Living Will

The Living Will, when cut to its core purpose, is a simple document. It is, typically, a written statement of the signee’s health care wishes when they are not able to communicate a decision regarding specific medical situations. Often, it is a document used to indicate that the signee either wants to stay on life support or be removed from life support when more than one physician determines the signee is in an incurable or irreversible mental or physical condition with no reasonable expectation of recovery. While New York State does not have a statute that specifically addresses the Living Will, the Court of Appeals (New York’s highest court) has stated that Living Wills are valid as long as they provide clear and convincing evidence of the signee’s wishes and the signee is 18 years of age or older.

Since the Living Will is an express declaration of the signee’s wishes and intentions regarding end of life medical decisions it can relieve a Health Care Agent of having to make the difficult decision of whether or not someone should stay on life support. The Health Care Agent will simply indicate that the signee has a Living Will and not have the cloud of making such a large decision hang over them. The signee will also have assurance that their wishes regarding end of life medical treatment will be honored.